Renewable energy in India has overtaken nuclear power as the country seeks carbon-free sources of energy to balance its reliance on coal. Such energy generation in India is higher than its nuclear power generation and is growing at a much faster pace because it is cheaper and quicker to install. The cost of renewable energy is now lower than the cost of nuclear power and does not come with attendant risks, such as this week's radioactive fuel leak in Gujarat.

Renewable energy has been growing at a faster pace than nuclear power over two years. During 2013-14 and 2014-15, renewable energy grew at 11.7 percent and 16.2 percent, respectively, while nuclear-power growth has been almost flat over the same period.

If the 2022 solar target is met, it will become India's second largest energy source. The bulk of India's renewable energy comes from wind, but solar energy is growing faster with installed capacity reaching 5,775 mega watts (MW) in February 2016. The national solar mission has set a target of 100,000 MW of solar power by 2022. If this target is met, renewable energy will become the second largest source of power for India after coal, and ahead of hydropower, natural gas and nuclear energy.

Nuclear power capacity in India is 5,780 MW. Another 1,500 MW is under construction and another 3,400 MW has been cleared -- a total of 10,680 MW by the end of the decade. Renewable energy's growth is propelled by the falling costs of solar and wind energy, as IndiaSpend reported.

In November 2015, US based SunEdison offered solar electricity in India at Rs.4.63/unit. In January 2016, this was followed by a Finnish company, Fortum Finnsurya, offering solar power to the National Thermal Power Corporation (NTPC) for Rs.4.34/unit.

At these prices, solar electricity is already cheaper than electricity coming from newly built hydro- and nuclear-power plants. For instance, India is now starting work on a Rs 39,849-crore expansion (2 units of 1,000 MW each) of the Kudankulam Nuclear Power Plant, Tamil Nadu, due to be completed by 2020-21. Electricity from these reactors-if they are completed on time-will cost Rs 6.3/unit.

Past experience in India and elsewhere suggests this is unlikely. Work on Units 1 and 2 of the Kudankulam Power Plant began in 2001 and was supposed to be completed by 2007 and 2008. Unit 1 began commercial operations in December 2014 while Unit 2 is yet to be commissioned.

This experience is mirrored in other countries: a power plant being built by the US firm Westinghouse is more than three years behind schedule; a French company, Areva, is building a reactor in Finland, about nine years behind schedule. Both Areva and Westinghouse are among the four foreign companies that want to build reactors for the Nuclear Power Corporation of India.

While nuclear power plants typically take more than a decade to build, solar farms and windmills can be erected in a few weeks to a few months, with capacities that range from 0.1 MW to 1,000 MW.

Also, nuclear power plants are owned and operated in India by one company, the Nuclear Power Corporation of India. Solar and wind-energy installations have been set up by private individuals, airports, banks, oil companies and educational institutions.

Apart from shutdowns -- such as this in Kundakulam and the one referred to in Gujarat -- making nuclear power more expensive, there is also the issue of nuclear liability: Who pays in case something goes wrong? Foreign companies want to build reactors in India, but don't want to face resultant liabilities, as IndiaSpend reported.

But renewable energy has its own problems. The single biggest problem of renewable power is its intermittent nature. The sun does not always shine, and the wind does not always blow.

So, 1 MW of renewable energy generated 1.43 million units of electricity from April 2015 to January 2016. Over the same period, 1 MW of nuclear power generated 5.85 million units of electricity. A nuclear power plant can operate round-the-clock and can supply electricity at night.

There is currently no cost effective answer for supplying renewable energy round-the- clock.

An interim solution can be to use renewable energy when it is available, and turn to natural gas, a fuel much cleaner than coal, at other times. India has more than 24,000 MW of natural gas-fired power plants -- enough to supply almost 10% of current electricity demand -- mostly idle due to lack of cheap fuel. The drop in international gas prices offers an opportunity to fire them up again, as IndiaSpend has reported.

Solar power also needs a lot of land. Putting up 1 MW of solar power requires two hectares of land. This means large-scale solar power plants should only be put up on land that has no value for agriculture or wildlife. This restricts large-scale solar power to the arid areas of Rajasthan, Gujarat, Himachal Pradesh and Ladakh. Small-scale rooftop solar plants can, however, be installed in cities.

Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

We had mentioned in last week’s closing report that Nifty, Sensex were in no man’s land and that the indices were probably waiting for global cues. In a week of volatile trading in India and favourable macroeconomic data from India and abroad, the major indices of the Indian stock markets rallied to gain around 1% on a weekly basis. Bank Nifty, in particular, gained 3.21%. The trends of the major indices in the Indian stock markets over the week’s trading are given in the table below:

On Monday, the major indices of the Indian stock markets opened higher based on foreign institutional investors’ interest and higher global markets on Friday and Monday. But it could not gain momentum and closed marginally higher over Friday’s close. The minor rally was led by Tata Motors, after it posted robust sales for February and on improved global risk appetite after gains on Wall Street and in Europe last week.

Inflation data was available from the government on Monday and WPI (wholesale price index) inflation remained in the negative zone for a 16th month at (-)0.91% in February as food articles, mainly vegetables and pulses turned cheaper. The Wholesale Price Index-based inflation was (-)0.9% in January. In February last year, it was (-)2.17%. This is the 16th straight month since November 2014 when deflationary pressure has persisted. Food inflation stood at 3.35% in February compared with 6.02% in January, showed official data. Inflation in pulses and onion eased to 38.84% and (-)13.22%, respectively. The rate of price rise in the case of vegetables was (-)3.34%, and for fruits, it stood at (-)1.95%. Price rise in potato was (-)6.28% while that of egg, meat and fish came in at 3.47%.

On Monday, it was reported that rain and hailstorms had hit parts of northern India since Friday, which had flattened wheat, mustard and coriander crops in states like Punjab, Uttar Pradesh and Haryana. BP Yadav, director of India Meteorological Department (IMD) said that while crops had been affected, full damage could not be quantified. Rains were expected to halt for two to three days in the states of Punjab and Haryana, but would resume post March 17th, Yadav said adding that there were worries on the eastern side of the country. These worries are likely to reduce agricultural income and aggregate demand in the country and thus apply pressure on corporate revenues. This will, in turn, apply pressure on the possibility and extent of a bull market in the Indian stock markets for the next few months.

On Tuesday, inflation data analysis revealed that after five months of steady rise, the CPI (consumer price index) had dropped, to 5.2% in February, from 5.7% in January, making the case stronger for another repo rate cut by the Reserve Bank of India (RBI). “The Budget’s focus on fiscal consolidation had already created conditions for the RBI to cut rates; we expect the policy rate to be sliced by 25-50 basis points (bps) in 2016. A benign inflation climate further allows for this; CPI, we believe, will stay soft at 5% average, unchanged from our estimate for fiscal 2016, if India is blessed with a normal monsoon. Given the excess industrial capacity, weak demand and soft commodity and crude oil prices, the impending Seventh Pay Commission payouts are unlikely to swing inflation away from the RBI’s glide path,” said CRISIL in its forecast on inflation.

Other macroeconomic data which was available on Tuesday included IIP (Index of industrial production) data. It dipped for the third month in January, reporting -1.5% growth, compared to -1.2% in December. This was led by a steep fall in manufacturing activity, mainly in industrial and investment related goods. Capital goods continued to be major drag on industrial activity reflecting the investment lull in the economy, while consumer durables output was flat on-year reflecting weak demand. The major indices suffered a sharp correction, and closed about 1% lower than Monday’ close.

Key Indian equity indices were trading in the red during the afternoon session on Wednesday ahead of another crucial meeting of the US Federal Reserve later in the evening. Later in the day, buying resumed and the indices improved to close in the green. On Thursday, it was reported that the US Federal Reserve had kept its benchmark short-term interest rates unchanged amid potential risks to the US economy, signalling the central bank would slow the pace of future interest rate hikes this year. In a statement released after a two-day policy meeting, the Fed said US "economic activity has been expanding at a moderate pace despite global economic and financial developments in recent months," but these developments continue to pose risks. In December, the Fed had raised its target range for the federal funds rate by 25 basis points to 0.25%-0.5%, the first rate hike in nearly a decade, marking the end of an era of extraordinary easing monetary policy. But the turmoil in financial markets and a slowdown in global economy since the start of the year had raised increasing concerns about the strength of the US economy, forcing Fed policymakers to hold off on any further rate hikes since then. In its January policy statement, the Fed had declined to make a judgement about the balance of risks to the US economy, an indication of the uncertainty about the impact of global economic and financial turbulence on the world's largest economy. The changes in the statement on risks signalled that Fed officials were inclined to wait for more time to assess the US economic outlook before raising interest rates again.

On Thursday, Nifty traded above 7,550 for much of the day, following a strong opening, but ended flat. The Sensex also ended flat. Key Indian equity indices were trading in the green during the afternoon session on Friday on positive global cues. The postponement of the interest rate hike on the part of the US Federal Reserve has kept the fixed income-equity investment balance for investors in favour of equity and the global markets have resumed active trading without the earlier ‘wait and watch’ attitude. Foreign institutional investors were also found showing interest in the Indian stock markets. The major indices rallied to close more than 1% over Thursday’s close. Throughout the week, the Bank Nifty and the S & P BSE Bankex were seen improving based on news of government reforms and strict action taken by State Bank of India on Mallya (of Kingfisher Airlines) to recover bad loans.

User

While the RBI's AQR move was a master stroke to clean bank books and stop the evergreening of stressed loans, the move to restructure MSME loans can have an opposite effect, warns Religare Capital in a report

The Reserve Bank of India (RBI) has allowed banks to restructure micro, small and medium enterprises (MSME) loans up to Rs25 crore by devising a corrective action plan (CAP) and opting for the rectification or restructuring and recovery of such stressed accounts. However, this move can have an opposite effect, says a research report from Religare Capital Markets Ltd.

"While with this move, the RBI is looking at faster resolution of stress in MSME accounts, we think the impact would be starkly opposite to the central bank’s asset quality review (AQR) drive which aimed at cleaning up bank books. Banks may also witness a surge in MSME restructuring, making it difficult to keep a tab on such loans," the report says.

The RBI has issued guidelines for restructuring of MSME accounts with outstanding debt up to Rs25 crore. Banks have been directed to form a committee and devise a corrective action plan (CAP) for all stressed MSME loans, of which accounts with loan limits up to Rs 1mn have to be dealt with at the branch level. Moreover, a stressed MSME with debt in excess of Rs10 lakh can directly apply for a CAP. The committee, within 30 days of convening its first meeting, has to zero in on any one of the following three options to be adopted under CAP:

(a) Rectification (fresh loan disbursement to stressed MSME accounts): Banks can grant MSME borrowers additional funding for six months in order to revive the account, while ensuring there is no net present value (NPV) hit on their books. While such accounts would retain their existing classification, fraud cases would fall under the restructured category if rectification along with the six-month funding option is availed more than once during a year. Only in exceptional cases, banks would be allowed to fund the working capital requirement of MSMEs, while in the normal course, an account would directly slip into NPA in case of diversion of funds.

(b) Restructuring of existing loans: This applies to standard accounts, special mention accounts or sub-standard accounts with one or more lenders (but not majority of lenders). The moratorium for restructuring would be six months and the restructuring package should outline the milestones to be achieved after this period. No timeline however has been prescribed for attending full normalcy with respect to MSME loans. Also, restructuring can be done only if the borrower is not a wilful defaulter and if majority of creditors approve the same. In addition, MSME promoters would have to extend personal guarantees for restructuring.

(c) Recovery: Banks can resort to the recovery of loans if either rectification or restructuring is not found viable, and initiate the process at the earliest.

Religare Capital says while the RBI's AQR move was a masterstroke to clean bank books and stop the evergreening of stressed loans, the move to restructure MSME loans can have an opposite effect. It feels, the volume of loans under MSME restructuring will be large compared with corporate debt restructuring (CDR), making it difficult to monitor them.

"We think even standard accounts will opt for this scheme (as done by many corporates earlier) since it eases the interest and debt repayment burden in the near term. Note that lower provisions on stressed loans don’t go down too well with investors. Loans to MSME sector form 12-15% of total system loans. It is difficult to ascertain the exact impact of the RBI’s move, as MSME exposure already classified as NPAs in the books of banks is not known. However, we believe PSBs are likely to offer this scheme to a large number of MSMEs," it concluded.